How Markets work - Supply and Demand-1

                               Supply and Demand

Microeconomic -
building blocks that create big economy

Opportunity cost

   Implicit versus explicit(accounting) costs
   economic cost versus accounting cost

Sunk cost/benefits - Anything that is common to whatever choices you have can be filtered out of the analysis.

The Determinants of Demand

Law of Demand - When you lower the price of any good or activity, consumers will demand more of that good or activity.

No just price alone. It's important to understand how Price versus non-price factors affect quantity demanded.Price induces just a movement along a given demand curve.Any other factor changes, it'll shift the entire price quantity relationship. For any constant price, quantity demanded will differ if income is changed or substitutes, prices of substitutes or compliments are changed or government taxes and subsidies have been instituted.

Substitutes(lexus, bmw), complement (car,oil) affect the price of the item. some items are substitutes or complement.

The Determinants of Supply

The law of supply - The higher the price the greater the quantity supplied
Technology, input prices, government taxes/susidies

Market Equilibrium 

The point where the demand curve and supply curve intersect.

Lecture slides(PDF)

Definition: The nominal value of a good is its value in terms of money. The real value is its value in terms of some other good, service, or bundle of goods.

Examples:

• Nominal: That CD costs $18. Japan's science and technology spending is about 3 trillion yen per year.
• Real: A year of college costs about the value of a Toyota Camry. Those tickets to see Van Halen cost me three weeks' worth of food!

Relative price is another term for the real price of a good or service. When we say that the relative price of computers has fallen in recent years, we mean that the price of computers relative to or measured in terms of other goods and services—such as TVs or cars—has declined. Relative prices of individual goods and services can decrease even if nominal prices are all increasing, because of inflation.